Thai trade breakdown to hit Cambodia most

http://www.phnompenhpost.com/

via CAAI

Friday, 29 April 2011 15:00Steve Finch

Prime Minister Hun Sen’s threat on Wednesday to cease all imports from Thailand may have helped further stoke nationalistic fervour as clashes continued on the border, but in reality Cambodia stands to lose out much more than its neighbour should bilateral trade collapse.

While Thailand represents Cambodia’s biggest trade partner worth some US$2.54 billion last year, the other way round Cambodia is but a drop in Thailand’s economic ocean making up a paltry 0.68 percent of the country’s total trade in 2010. To put things into perspective, Thailand’s food exports at a projected $28.5 billion for this year, according to the country’s National Food Institute this week, will be more than two times larger than Cambodia’s entire GDP in 2011 at just under $13 billion.

Although Cambodia continues to register a huge trade deficit with its neighbour – more than $2.1 billion last year – at the two border crossings that closed this week at O’smach and Choam Cambodia is the net exporter, according to reports from officials in the area.

Much of this trade from the Cambodian side is in perishable agricultural goods, and in most cases farmers do not have the necessary infrastructure to store or preserve their products, meaning they have few other avenues to sell outside of trade across the Thai border.

At other busier checkpoints such as Poipet, Thai exports far outweigh those from Cambodia, no doubt a reason why Thailand instead targeted O’smach and Choam for closure this week. So Hun Sen’s threat to cease all Thai imports would undoubtedly hurt companies across the border at the likes of Poipet and Koh Kong, while Cambodia could no doubt find other suppliers from the likes of Vietnam and China, as the Prime Minister suggested. But the reality is much more complicated with negative implications for Cambodia as well.

In terms of logistics, importing goods from everywhere but Thailand makes little economic sense, especially in the west of Cambodia given the geography and heavy cost of transportation. Also, many Thai imports are raw materials that fuel Cambodia’s economy, therefore ceasing imports in these products would cause huge disruption, adversely affecting domestic economic activity.

For example Siam Cement Group, a major investor in Cambodia, imports most of its products through Poipet, including building materials and fertilisers which are sourced by many builders and farmers here. So although closure of the border would hurt this Thai company it would also be detrimental to Cambodia’s economy. Simply replacing these products with those from Vietnam or China is not that straightforward – distribution networks take years to generate and expand, quality can differ and so too can the products available. The free market exists for a reason.

The net result is that while a decision to bar Thailand’s imports would hurt businesses there, overall Thailand’s economy would barely register a blip. In Cambodia, however, the impact of a bilateral trade meltdown would be severe, and not just confined to the border.

Given this reality, Hun Sen’s threat this week will almost certainly amount to very little. Cambodia simply cannot afford to close its borders to Thai trade.